Land and Buildings to nominate slate of directors to replace Associated Estates Realty Corp.'s board

Land and Buildings, an investment firm based in Stamford, Conn., said it intends to nominate a slate of directors to replace the board of directors of apartment owner Associated Estates Realty Corp. (NYSE: AEC), which is based in Richmond Heights.

Several of the proposed directors are high-profile veterans in the world of real estate investment trusts and apartment operators. They include Marcus Bromley, the former CEO and chairman of Gables Residential Trust, an Atlanta-based private REIT, and R. Scot Sellers, former CEO and chief information officer of Archstone-Smith Trust based in Englewood, Calif., which was taken private in 2007.

The filing is the second shot that Jonathan Litt, the founder and chief information officer of Land and Buildings, has fired at Associated Estates. Last June 3, Litt called on shareholders of Associated Estates to urge the company to pursue alternatives to unlock shareholder value. The stake of Land and Buildings in Associated Estates has increased to 2% from 1% in June, according to a news release the Connecticut firm issued on Monday, Nov. 17.

The latest filing is more bellicose than the original.

“We believe that Associated Estates’ 20-plus year history of material underperformance and shareholder value destruction can be traced back to one central issue: an entrenched, intertwined and stale board of directors,” the filing stated.

Land and Buildings maintains AEC should trade at $29 a share compared with $19.66 at the market close on Friday Nov. 14. It also criticizes the makeup of the local REIT’s board.

“All seven incumbent directors are based in Cleveland, which only provides a narrow view of the relevant market given that 90% of AEC’s (net operating income) is generated outside Cleveland,” Litt wrote in a letter to investors that formed the SEC filing.

Moreover, Litt said, “None of the external AEC directors have experience in high-quality apartment operations, the average tenure is over 14 years and Jeff Friedman has been combined chairman of the board and CEO since 1993.”

The board’s executive committee, consisting of Friedman, his brother-in-law Richard T. Schwarz and the firm’s longtime lawyer, Al Adams, has a “clear lack of independence” that Litt blames for the company’s failure to maximize value.

The other shareholders that Land and Buildings is promoting for the board are: Michael J. DeMarco, a former investment banker and REIT executive at Vornado Realty Trust (NYSE: VNO); Charles M. Elson, a professor at the University of Delaware and an expert in corporate governance; Dana Hamilton, a former executive vice president of operations at Archstone-Smith Trust and Gregory F. Hughes, former chief financial officer of SL Green (NYSE: SLG).

In morning trading Monday, Nov. 17, Associated Estates opened at $19.70 and has gained almost $1, or 4.9%, to $20.62 at 12:17 p.m. Monday, Nov. 17.

Associated Estates did not immediately respond to the filing. Amanda Petrak, its spokeswoman, did not return three calls by 12:45 p.m.